§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Donald Thompson.]
§ 10 pm
§ Mr. Guy Barnett (Greenwich)I am grateful for the opportunity to raise the Crown Agents as a subject for debate on the Adjournment. The future of the Crown Agents has been a matter for speculation since the end, nearly a year ago, of the Brunei contract to manage the Sultan's investment portfolio. Indecision behind closed doors has characterised the Government's conduct ever since. Leaks in the press and rumours that abound point to interdepartmental conflict on the issue.
Last December the Minister for Overseas Development confirmed, as I suspected, that abolition was one of the options being considered, so the staff of the Crown Agents have reason to be anxious about their future. That is bound to have an adverse effect upon morale. In turn, deteriorating morale is in danger of reducing the effectiveness of the organisation, and eventually its reputation abroad upon which its business ultimately depends.
My first plea is that the Government should end the uncertainty and cease procrastinating. Over the past year I have had contacts with the Crown Agents and with members of the staff. Through them and in other ways I have learned a good deal about the value of the Crown Agents. I have developed a special regard for the dedication and sense of service that characterise the staff and a tradition that has been built up during the 150 years or so of the existence of the Crown Agents. Nevertheless, I hope to make it clear that the ideas I am putting forward are very much my own, based upon my observation in Britain and overseas.
The Crown Agents have earned a reputation for moral integrity, knowledge and expertise. Of course, over a period of 150 years mistakes have been made. But of what organisation can that not be said? Their mistakes have been of human error, not corruption or greed. Unquestionably, the reputation of the Crown Agents for incorruptibility and professionalism makes them unique in the sector in which they operate. I mean that. There is no other organisation like the Crown Agents in the world.
Interestingly, that reputation did not suffer abroad in the wake of the property and secondary banking scandals of the early 1970s. Three hundred institutions in over 100 developing countries still use the Crown Agents for most of their dealings. I use the word "still" because the Crown Agents are often spoken of as a legacy, a sort of hangover from the British Empire, a relic, obsolete in today's world. That decidedly is not true, and the proof is the £30 million worth of business that they did in 1982 in procurement, in large and minutely small indents, responding to an incredible variety of demands in engineering, where they have special expertise, and in fund management. That is by no means a complete list of what they do. Indeed, one observer remarked, "What do they not do?" I could not answer that question confidently, and the time available in this debate does not permit a fuller description of the work they do.
It is important to underline four points that show that the Crown Agents, as constituted, are unique and 497 valuable. First, their job is to serve their customers, or principals as they are called, in over 100 Third-world countries.
Secondly, as a result the Crown Agents create an immense amount of goodwill for Britain in those countries because of their honest dealing and scrupulous representation of the interests of their principals.
Thirdly, as a by-product, the Crown Agents provide practical service to British industries and services, especially to small firms. It is no wonder that the Director-General of the Confederation of British Industry, Sir Terence Beckett, gave CBI backing to the Crown Agents—and that backing came from the CBI midlands region where many small firms are based.
Lastly, a point that most people have missed is that the Crown Agents, by handling contracts on behalf of the Overseas Development Administration and multilateral donors, raise the value of the aid given by ensuring the best price, the appropriateness of the goods bought, and inspection of equipment to ensure its proper and efficient working.
In the light of that, what are the arguments for change from the current position of the Crown Agents operating as a public body? What are their arguments for privatisation of one sort or another or for outright abolition? I regret that those are the options that the Government appear to be considering.
Some people's judgment may be guided by the disastrous record of investment in property speculation and secondary banking in the early 1970s. The answer to that was given by Mr. Peter Graham, the senior agent, who was quoted as saying:
Anyone who wants to abolish us because in 1974 we got our nose rubbed in the dirt should have spoken up then, not now. Since then the Crown Agents has been completely reconstructed and has rebuilt the confidence of its customers.I recall that many privately owned institutions did not exactly distinguish themselves during that period, so anyone who values the work of the Crown Agents and thinks that they might be more useful in private hands has a difficult case to argue.Another, more respectable, argument is that at that time the Crown Agents imposed a charge on the Exchequer and that the loss of the Brunei contract, plus the uncertainty that clouds the field in which they work—especially in the world's current economic impasse, for which the Government must bear some of the blame—may mean that there is a risk of the same thing happening again.
That risk is significantly small, for two reasons. First, the Crown Agents Act 1979 effectively prevents, if it were necessary, any recurrence of the events of the early 1970s. Secondly, the Crown Agents have proved their reliability by meeting the targets laid down by the Government in March 1982 when Sir Neil Marten was the responsible Minister.
The Crown Agents succeeded in doing that by anticipating many of the difficulties that they were bound to face. The organisation has been streamlined and new markets have been found. In a short space of time, under the guidance of the previous senior agent, Sir Sidney Eburne, the Crown Agents have become more sensitive and responsive to changing demands.
I cannot lay too much emphasis on the quality, expertise and sense of dedication of the staff that made those changes possible. Anyone who seriously believes that there is room for further slimming of the staff had 498 better find out how much overtime is being worked to get through the work that must be done, and take cognisance of the quality of that work.
Nevertheless, there is an immediate issue in the shape of the ending of the Brunei contract, and it is only fair to admit that other issues may have to be faced. They are the inheritances of the past. The Crown Agents are conscious of the need to spread the risks that they take. But retention of the organisation will almost certainly require the rescheduling of debts—not unknown in the Third world — until it has established its business on a sounder basis. Indeed, it is fair to point out that the Brunei setback—in no sense the fault of the Crown Agents—has a great deal to do with the last days of the Imperial relationship.
I am afraid that the trouble with the examination currently being undertaken by Morgan Grenfell is that the Crown Agents may be judged by whether or not they can make profits. Accountants' rules may be applied by those who are ignorant of the organisation and its proper functions. As the permanent secretary at the ODA aptly put it, those functions are
to minimise competition with the private sector"—and—to concentrate on areas where its reputation and experience enable it to make a distinctive contribution which may at the same time benefit British Trade.We do not judge the success of the British Overseas Trade Board by the profit it makes, nor do we judge the success of the trade attachés in posts abroad by that criterion; and it would be almost as ludicrous to apply similar standards to the Crown Agents.I turn to the options that seem to be under consideration. The first option is abolition. However, I think that we can throw that option straight out of the window. It would be to ignore completely the cost-benefit arguments that I have mentioned. No one can measure the goodwill that Britain earns through the Crown Agents' work, the value in terms of the effectiveness of aid, or the continuing commercial, professional and other links that we enjoy. In addition, British industry, especially small firms, would lose a great deal of valuable business.
The second option, which I think must also be rejected, and which I assume is not up for consideration, is that some of the functions should be subsumed by the ODA. The reason for rejecting that option is that the Crown Agents are respected and trusted as independent and impartial by overseas Governments and institutions that use their services. That stamp of impartiality and independence would be lost by taking such a step. Moreover, most of the valuable business that the Crown Agents have built up with the multilateral agencies would also be lost.
The third option, of course, is some form of privatisation. A parliamentary answer yesterday suggests that that is the favoured option. I have to tell the Minister that the more I get to know of the work of the Crown Agents, the more I am convinced that that would be a disastrous course for the Government to take. I know of no way in which the Crown Agents could be partially or wholly privatised, without them losing the special reputation that they enjoy.
It is remarkable that, after countries became independent in the past two or three decades, so many decided to use the services of the Crown Agents. The 499 reason is that the Crown Agents are the only quasi-governmental organisation in the world that exists to act impartially on behalf of any Third-world Government, and to represent them in any area of development where they need help. The integrity of the Crown Agents is famous. It is based on a tradition of disinterested service to its principals. The anniversary publication, 1833 to 1983, says:
The tradition of adjudication on public tender and never by private bid became an established part of each country's development. It was this characteristic that gave the Crown Agents — and still does — their stature in the development world.In effect, the Crown Agents operate as an international civil service, observing standards that are traditional to the British Civil Service. That is why they obtain the business that they do. If they were to operate as a private agency, or as an agency in which private interests were represented by shareholdings, that reputation for impartiality would go. Inevitably, companies with large interests in the developing world would see an advantage in possessing a stake in the organisation, with the perfectly legitimate objective of seeking business for themselves. That might be acceptable in business ethics, but it would ruin the special standing that the Crown Agents enjoy among their principals.
Moreover, as a commercial procurement agency, they would be required by their shareholders to make profits for them; and that requirement would change the nature of the relationship that they currently have with their principals. If they ceased to be unique in the type of service that they provide, they would lose much of the business they now have, and independent Governments would be forced to set up their own procurement agencies. As a result, British firms would cease to enjoy the special advantage they now have in obtaining business in the developing world. In addition, much of the good will that we in Britain gain as a result of the Crown Agents' work would be dissipated.
I have raised this issue because I am afraid that the Government may be about to embark on a disastrous and ill-considered course. I believe that the Crown Agents have an important future as a publicly run agency. If there has been a fault, it has been on the part of the House and of successive Governments who have failed to give any clear political direction during the period when the Empire has been evolving into the Commonwealth.
There is still time for a proper examination of the future of the Crown Agents. First, the relevant Select Committee could undertake an inquiry. A year ago, it produced an excellent report on the Commonwealth Development Corporation. The Committee could do the House a service by providing a similar report on the Crown Agents.
Secondly, there needs to be thorough consultation of the interests of the principals, who, after all, provide the business. That should be done through ambassadors and high commissioners, and through Government-to-Government contact. I believe that the Commonwealth Secretariat would be glad to assist.
In my view, no solution will be acceptable unless it is based on meaningful consultation with the staff. Members of staff speak with special knowledge of their own relationship with those with whom they deal. They are the guardians of a valuable and perhaps extraordinary tradition, inherited by this country from the past, which must not be thoughtlessly thrown away. If it is thrown 500 away, many members of the staff will simply leave, taking their expertise with them. They have no desire to see all that the Crown Agents have stood for being prostituted to other purposes.
I very much hope, Mr. Deputy Speaker, that my hon. Friend the Member for Vauxhall (Mr. Holland) will have an opportunity to speak in the debate.
§ Mr. Deputy Speaker (Mr. Paul Dean)Order. In view of what the hon. Gentleman has said, I shall call the hon. Member for Vauxhall (Mr. Holland) to make a brief speech.
§ Mr. Stuart Holland (Vauxhall)I am sure that hon. Members will wish to give credit to my right hon. Friend the Member for Clydesdale (Dame J. Hart), who faced the consequences of the Crown Agents' involvement in the property market as soon as she became Minister for Overseas Development for the second time in 1974. I had the privilege of advising her at that time, and I know that she undertook a thorough review of their operations then, restructured them, and rendered them accountable to Parliament.
Since then, as my hon. Friend the Member for Greenwich, (Mr. Barnett) has just stressed — and I endorse his arguments—the Crown Agents have had an excellent, if not unique, record in serving both Commonwealth Governments and development prospects around the world.
It is clear that the Crown Agents did not lose the Brunei contract through inefficiency. They had a consistently higher rate of return on their operations—with one brief exception in favour of James Capel — than any other company. I include Morgan Grenfell, which is now crawling over them like undertakers, apparently preparatory to privatisation.
The key question has not yet been fully addressed. Why, with that successful record, did the Crown Agents have the Brunei contract knocked from under them? The answer lies with facts that should be placed before the House. In 1982, the present Government threatened to withdraw the Gurkha batallions at the disposal of the Sultan. It is apparent that the Government, seeking to prop up their venture garrison in the Falklands, persuaded the Sultan that he could be undefended by withdrawal of the Gurkhas. Discussion on the matter was so acerbic that the Foreign Office commisioner withdrew from Brunei and returned to London. Another Foreign Office official was sent out quickly to smooth the waters. Meanwhile, the Crown Agents appear to have been the only stick which the Sultan had at his disposal with which to hit back at the Government for the threatened withdrawal of the Gurkhas.
I am sure that the Minister will wish to answer the following questions. First, when did the discusions on withdrawal of the Gurkhas begin, and when did they break down? Secondly, did the Sultan or his officials — directly or indirecly—suggest that the Crown Agents' contract could be in jeopardy if the Gurkhas were withdrawn? Thirdly, did Her Majesty's commissioner walk out, or was he returned home although it was known that the future of the contract with the Crown Agents was in question? Fourthly, was there a conscious decision by the Government that the interest of the Falkland islanders were paramount relative to the future of both the Brunei contract and the Crown Agents? 501 It appears that the Crown Agents are paying the price for the Government's neglect of political guns, and that the decision to wind them down or privatise them is not only political and ideological but a reaction to the loss of a contract, although the failure was the Governments rather than the Crown Agents'.
The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Ray Witney)I am pleased to have the opportunity to reply to the hon. Member for Greenwich (Mr. Barnett) in the absence of my right hon. Friend the Ministr for Overseas Development who is in Uganda or Zambia, I am not sure which, at the moment.
The hon. Member raised an issue of considerable importance to Britain's relationships with the developing world. It is one to which he has paid long and dedicated attention, as I recognise. It is also an issue which is important politically, developmentally and commercially. It is a subject to which the Government are giving serious consideration, but no decision in principle or substance has yet been taken. I can convey no fresh news. I regret that the Government's consideration of the matter is taking longer than we had hoped, but, because the Crown Agents' activities are so wide ranging and, as the hon. Member for Greenwich and for Vauxhall (Mr. Holland) have recognised, delicate and complex, it is right that the Government should examine them with the greatest possible care.
I should like to make it clear that the events of the late 1960s and early 1970s, which formed the subject of the Fay report in 1977 and of the Crown Agents tribunal which reported in 1982, are not relevant to the Crown Agents as they are today. The hon. Member for Greenwich and I are at one on that point.
Since 1975 the Crown Agents have confined themselves to performing their traditional role of providing services to overseas Governments and Administrations as well as to the Overseas Development Administration in the administration of our bilateral aid programme. The constitution and role 6f the Crown Agents and their relationship with the Government were defined and regulated by the Crown Agents Act 1979. The disengagement of the Crown Agents from the own-account activities in property and secondary banking, which were the subject of those reports, became, under the 1979 Act, the responsibility of the separate Crown Agents Holding and Realisation Board, whose work is now largely complete.
Since its incorporation on 1 January 1980 under the 1979 Act, the Crown Agents have substantially overhauled and improved their organisation and structure, and have their efficiency under a keen and commercially-minded board, comprised largely of business men, under the chairmanship of Sir Sidney Eburne and, since last October, of Mr. Peter Graham, formerly chief executive of Standard Chartered Bank. Staff numbers have been reduced from some 2,100 at the beginning of 1980 to about 1,170 now.
Under the 1979 Act, the Crown Agents assumed a capital debt to the Government of £30 million, since reduced to £19.5 million, largely through the sales of office property released by staff economies. The Act enabled Ministers to permit the Crown Agents to progress gradually over a six-year period to full servicing of that debt. They were required to service the debt at 20 per cent.
502 of that figure in 1980 and 1981, 40 per cent. in 1982, 60 per cent. in 1983, and they are on course to achieve full servicing in 1985 as the Act required.
The Act also enabled Ministers to set financial targets for the Crown Agents and these were announced in the House on 26 March 1982 and covered the years 1982 to 1985. For the years 1982 to 1984, taken together, the rate of return was at a current cost operating surplus—I am sorry that these are fairly technical details—before the interest payable on the commencing capital debt of 0.5 per cent. of gross income over those years. For 1985 the target must be a surplus, similarly defined, of 6 per cent. of gross income, and within those targets the Crown Agents should seek to achieve an increase of 2.5 per cent. per annum in real and gross income per head of staff employed.
Soon after the announcement of those targets, in July last, the Government of Brunei terminated their agreement with the Crown Agents for the management of some £4 billion of Brunei's investments, and the hon. Members for Greenwich and for Vauxhall referred to that. It is only fair to say that the Brunei authorities assured the Crown Agents that this action was not taken because of dissatisfaction with the Crown Agents' performance, but because they thought it appropriate that, with the coming of independence this year, the management of these investments should be taken over by the Brunei investment advisory board, to be set up locally for the purpose.
The hon. Member for Vauxhall, who is renowned in the House for a certain enthusiasm for various aspects of the Falkland Islands issue, raised a number of other, if I may so call them, speculative suggestions about the reasons for the Brunei Government's decision. I cannot add to the knowledge of the House so as to shed light on the aspersions cast by the hon. Gentleman. I shall be happy to write to him in detail about the allegations that he made. I should find it surprising if the slant and spin that he put on that ball turned out to be the case, but I shall write to him on the subject.
The business of managing Brunei's investments had grown substantially in recent years to a point where, in 1982, it had provided about £3.5 million of the Crown Agents' total annual income, which was about £32 million. The Brunei income had therefore been important in enabling the Crown Agents to carry through a progressive reorganisation of their business in recent years, which they planned to continue. The sudden loss of this source of income would have placed the Crown Agents in a serious financial situation if corrective action was not taken.
After urgent and serious consideration, the board of Crown Agents submitted to the Government at the end of September proposals for the acceleration of the programme of change which was already in hand and for the financial restructuring of the business, with the object of achieving full financial viability by 1986.
The Government have been examining these proposals with great care, since before we could accept them we would need to be satisfied not only that the measures of reorganisation which the Crown Agents envisaged would be feasible in themselves but that, together with the current and likely future state of the world economy, particularly as it affects developing countries, they would carry the clear prospect of financial viability being achieved.
Our consideration of the future of the Crown Agents must, of course, be more fundamental than that. We must ask ourselves what a body like the Crown Agents should 503 do in the last years of the 20th century. In the first half of the century their role was clear and definite enough, but since the 1960s the Crown Agents have had to develop, as virtually all the dependencies have become independent, a new relationship with their principals. There has been great need for the Crown Agents to adjust to take account of the immense growth of the multilateral lending institutions.
We must also ask ourselves about the provision of services for the developing countries and for Britain, about the importance of assisting with the administration of the aid programme and about the important role of bringing business to British firms—a point raised by the hon. Member for Greenwich.
The Government fully recognise the need for an early decision, both for the Crown Agents as a body and for their staff, and the hon. Member for Greenwich referred to the 504 problems and loyalty of the staff. I, too, pay tribute to them. They have carried out their duties with remarkable efficiency and enthusiasm in circumstances of great and prolonged uncertainty, and this has been a period of considerable worry for them.
However, we are talking of important decisions, decisions which we must get right, and it would be imprudent for me tonight to promise to make a decision by a particular date. I can only say that the Government will take their decision as soon as they have carefully and fully weighed the various options that are provided, among others, by the Morgan Grenfell study, to which the hon. Member for Greenwich referred. It will be a wide-ranging study which will take account of all the aspects which have been raised in the debate and I hope that shortly it will be possible to bring to the House an announcement about those decisions.
§ Question put and agreed to.
§ Adjourned accordingly at half past Ten o'clock.